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Tim Worstall

The psychologist and political theorist Jonathan Haidt declared that what separated the right and left aren’t at separate ends of a spectrum. In reality morality is divided into five main categories of moral concern — harm, fairness, loyalty, authority and purity.

The left care a lot about harm and fairness but not much about loyalty, authority and purity. The right care about all five values about equally. While the environmentalists usually line up with the left on most matters there is a striking difference between the left and environmentalists.

Environmentalists care about purity. One of the things that derives environmental politics isn’t just a concern for the natural world for its own sake, but a feeling that it is should not be interfered with, that it should be kept pure. It is this adherence to purity that makes environmentalists and economists get along so poorly.

Conservatives care about human purity too, one of the reasons they hate the gays (or hated, much of the right has come a long way), is because they violated particular ideals of masculinity. That and bum sex is icky. Environmentalists have a similar views on nature, there are ways nature should be and then there are ways mankind perverts it.

“But if you ask the economists, in that equation where do you put the ozone layer? Where do you put the deep underground aquifers of fossil water? Where do you put topsoil or biodiversity? Their answer is ‘oh, those are externalities’. Well then you might as well be on Mars, that economy is not based in anything like the real world,” Dr. Suzuki goes on to say. Dr. Suzuki’s remarks on externalities were clarified in an interview given to the magazine Common Ground: “I won’t go into a long critique, but currently nature and nature’s services – cleansing, filtering water, creating the atmosphere, taking carbon out of the air, putting oxygen back in, preventing erosion, pollinating flowering plants – perform dozens of services to keep the planet happening. But economists call this an ‘externality.’ What that means is “We don’t give a shit.” It’s not economic. Because they’re so impressed with humans, human productivity and human creativity is at the heart of this economic system. Well, you can’t have an economy if you don’t have nature and nature’s services, but economics ignores that. And that’s an unbelievably egregious error.”

Anybody who knows anything about economics as practised in ivory towers or government knows that this is nonsense. An externality isn’t something which economists ignore. It is something which those economists study will ignore until they are made to pay attention. A factory owner will ignore his pollution’s effect on those downstream because he receives the benefits from cheap waste disposal but none of the costs. This can be dealt with through negotiation, if those downstream have property rights over their water. It can be dealt with through regulation, if coordinating those affected proves to difficult without a state. Economists don’t just ignore it.

In fact, economists have for years been deeply concerned with coming up with ways of dealing with externalities. Pigou was worried about rabbits, Coase was worried about pollution, one of the paper’s that got Paul Krugman his Nobel prize wouldn’t have been possible without the concept of “positive” externalities. That’s over 30,000 citations from three works from three of the most well known economists in the world. This isn’t marginal stuff.

So why would an environmentalist ignore such a canonical part of the economic literature? I would say it is because they share with conservatives a respect for purity which economists and I do not share. Whereas an economist sees a problem of balancing benefits and costs, an environmentalist sees a problem of protecting something from contamination. This implies a different balance of benefits and costs. It implies a steep cost curve going down but only a gradual one going up. Easy to go there, hard to come back.

This means that while economists think they can ameliorate things by changing prices, environmentalists are more worried. Pricing externalities so that those who cause them pay the costs (or receive the benefits) seems like all too little effort for protecting nature’s purity. This means that environmentalists misinterpret economist’s offers of help as capitulation. And economists misinterpret environmentalists’ failure to campaign for the right things as ignorance.

I’ve sketched out a caricature of an environmentalist for this post (likewise a caricature of economists), but I think it gets to a fundamental problem that bedevils environmental policy making. A lot of the policies that would help achieve environmentalists immediate aims are not compatible with their high level aims of maintaining nature’s purity. For example, carbon prices and nuclear power could help eliminate carbon fuels, but environmentalists are uninterested because carbon pricing is too weedy an instrument and nuclear too powerful a technology. Likewise, fisheries are being ravaged because it is very difficult to privatise the seas to encourage careful husbandry and environmentalists see privatising the seas as despoiling their purity.

It is a tragedy of miscommunication, and not one to which I think there is an answer. Sensible policies only get enacted once we know what they are and there is a coalition able and willing to force it through. We know the answer to many environmental questions, and we have a movement able to force those policies into practice, but the will is lacking.

If you’ve got some natural resource within your borders, one that lots of people want to buy, then you end up getting lots of foreign money being changed into your local currency as people buy that resource. That drives your exchange rate up and thus strangles everything except that natural resource.

That isn’t the resource curse, that’s Dutch Disease, so named because after the Dutch discovered Gas all their other businesses became uncompetitive. The resource curse is more complex than that.

Currency appreciation may be bad for producing and exporting things, but it is very good for consuming and importing things. Both of these things are good things to do, it is all about degree. To call either circumstance a curse is a misnomer. Consuming things is the point of economics, were it not why invest in a gamble to consume more in the future?

No, I think currency appreciation is a significantly smaller part of the resource curse than is the fact that the presence of valuable resources make it more profitable for elites of one shade or another to seize political and economic control of a country’s institutions.

Having an overvalued currency might depress output in a few exporting sectors a bit, having competing meglomaniacs try to take over your country will crush economic activity everywhere.

The most important thing a developing country can do is to enforce fair rules in a predictable way, natural resources and the super profits available from their sale, make it incredibly easy for one group or another to evade, subvert or supplant the law.

On the one side, it’s not a human, just a blob, entirely up to the woman what she wants to do with it.

On the other it’s one of God’s chosen creatures and so deserving of the same protections the rest of us get.

You can think a foetus is a person and that a woman is allowed to abort it.

If a woman’s body is her own – and it is – then even if someone is reliant on her for life she has the right to refuse that support. A foetus’s right to life does not involve the right to use someone else’s body…

You wake up in the morning and find yourself back to back in bed with an unconscious violinist. A famous unconscious violinist. He has been found to have a fatal kidney ailment, and the Society of Music Lovers has canvassed all the available medical records and found that you alone have the right blood type to help. They have therefore kidnapped you, and last night the violinist’s circulatory system was plugged into yours, so that your kidneys can be used to extract poisons from his blood as well as your own. [If he is unplugged from you now, he will die; but] in nine months he will have recovered from his ailment, and can safely be unplugged from you.

So the argument should not be sidetracked by debates on whether a foetus is alive or not. The real crux of the matter is whether a woman’s body is her own or that of society.

You could say that the woman chose to have sex and that implies an obligation to the consequence of that. But that just underlines the real reason most religious people are against abortion; babies are punishment sluts for having sex.

Consider for example, if you really, actually, honestly thought life began at conception then you would be in constant mourning. At least half of all fertilised eggs fail to implant. That means that for every person born at least one has already died, the attrition rate makes abortion seem trivial. There is basically no better way to spend money to save lives than working to improve that statistic. Yet anti-choicers spend money punishing sluts campaigning to lower the termination limit on abortions.

Call it revealed preferences, anti-choicers like punishing women, but not working to improve embryonic implantation rates. Makes you question their motivations, no?

We’ll never sell those gilts back. The IFS says we have £280bn of new gilts to sell over the next three years to fund the deficit. There is not a hope we’ll add £350 billion of resale of gilts on top of that. The only likelihood is in fact of more QE: over that period there is no way the market can absorb £280 billion of new debt.

If the UK can issue safe assets in the form of Government debt (which judging by our interest rate we can), then we categorically will be able to sell it. There is a global shortage of safe assets as this graph illustrates and large global demand for them.

Asians save lots, but don’t have robust enough state or financial institutions to produce safe assets. That is, they want to be able to transfer consumption from now into the future but lack an infrastructure capable of delivering this at prices which are satisfactory.

The UK can issue lots of debt so long as people believe it will pay it back in full in a currency still worth more or less how much they expect. There is no danger of not finding buyers so long as those conditions hold, and they look like they will for the foreseeable future.

The same is true of nearly all developed economies with their own currency. Look at the US, belching out debt and facing record low interest rates and a market hungry, begging, ravenous for more (via Delong).

This strengthens Richie’s case for larger budget deficits but weakens his case for unwinding QE by monetising the debt. I do not know how he can hold both opinions simultaneously.

Much as it pains me to say, Timmy comes out on top. Brad DeLong lauds the Neville Champerlain that dragged Britain out of the Great Depression:

BERKELEY – Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.

Whereupon he got us off the gold standard and cut government expenditure.

It was a couple of years later, when the currency devaluation thing had done its stuff that he started to expand spending again.

I’ve not got the numbers for the deficit or national debt in those years. But the idea that Our Nev did “fiscal expansion” in 31, 32, seems very strange indeed. Anyone know?

So, was Neville Chamberlain to the left of Clegg and Co or is Timmy correct and Brad DeLong doing economic history wrong?

Luckily I don’t have to adjudicate this – I’ve brought the cavalry for Tim, someone even Brad will not snark at – Nick Crafts has the answer (via). There was fiscal stimulus from 1935 as rearmament kicked in, but from 1932 onwards taxes were raised, spending cut and debt stabilised:

Over fiscal years 1932/33 and 1933/34 the structural budget deficit was reduced by a total of nearly 2 per cent of GDP as public expenditure was cut and taxes increased, the public debt to GDP ratio stopped going up while short term interest rates stabilized at about 0.6 per cent. Yet, from 1933 to 1937 there was strong growth such that real GDP increased by nearly 20 per cent over that period…Fiscal stimulus was not a factor in the UK recovery until after 1935 when rearmament began.

The secret was no secret at all, and is alluded to by Tim. It was unconventional monetary stimulus to raise the price level back to pre depression trends. This raised inflation expectations, pushed down interest rates, and promoted consumption and investment, et voila, the UK grew 20% over 4 years in the face of fiscal contraction.

Something similar today from the Bank of England, like price level targeting or NGDP level targeting would get some life into the British economy, and save us all a lot of bother and suffering.

PS: Other quotations from this paper to warm the cockles of Timmy’s heart include…

A major way in which [easy money] stimulated the economy was through its favourable impact on housebuilding in an economy without strict planning rules; the private sector built 293000 houses in the year to March 1935.